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NEW DELHI: Buoyed by global sentiments and expectations of an RBI rate cut, Indian markets have rallied substantially in the past few days. While analysts acknowledge that the market is likely to remain volatile, some are of the opinion that the rally is not over yet.

Aditya Birla Money in its latest report has cited six reasons why the market rally will continue: We take a look at them and the stock recommendations of the brokerage.

1) Risk on Rally to continue in foreseeable future:

According to Aditya Birla Money, loose monetary policy (low interest rates and asset purchases by central banks) in the developed world has increased investor risk appetite.

"Economic data is weak enough to warrant continued stimulus but strong enough to keep earning expectations positive. Equity markets in developed world including US, Germany have made new highs. Others including Japan and India are at 3-5 year highs," the brokerage opines.

2) Recent signs of shift in stance in Eurozone Governing Council in favour of growth from austerity:

Recent signs of shift in stance in Eurozone Governing Council in favour of growth from austerity, reflected in the statements by the EC and ECB, advocating medium term consolidation rather than front loaded austerity would provide strong momentum to the global equity rally.

"The shift could mean the ECB easing lending norms to peripheral country commercial banks and engaging in asset purchases and the EC easing pressure on peripheral countries to reduce sovereign debt and deficits. This would result in further reducing peripheral sovereign bond yields (Italy, Spain, etc) and reducing political pressures for troubled Eurozone countries to break away," it says.

The significant alleviation of the tail risk event of a Eurozone exit resulting from this would almost certainly give strong momentum to the current global equity rally already underway.

3) Part of the Speculative money in Commodities to shift to equities:

With the "Risk on" rally continuing in the global market and the speculation in commodities broken, part of the speculative money from commodities is shifting/would shift to equities which are seeing new highs. A proportion of the same could pour into EMs with India benefiting from the shift in the trend.

4) Inflation moves into RBI's comfort zone:

For the first time in 41 months, inflation has eased into the comfort zone, paving way for more flexibility in monetary policy. On the domestic front, with oil, gold and industrial commodity prices weakening has led to WPI slipping below the 5% level mark. RBI Governor has indicated that he would consider falling inflation while deciding on interest rates in the bank's next policy meet raising market expectations for further interest cuts.

"We expect another 50-75 bps cut in the rates during the course of the year. Monthly Diesel price hikes - seen as biggest reform in oil sector would further ease investor concerns on the fiscal deficit front," the brokerage adds.

With only 2 out of the 15 companies in the Sensex having missed the analyst estimates (Bloomberg consensus), the corporate performance has been far better than Q3FY13 where 43% companies missed estimates and 40% missing estimates in first 2 quarters.

"The industry would see margin expansion in the coming quarters as the input prices are softening. Benefit of falling interest rates would start reflecting in the corporate performances in the 2nd half of the calendar. Government is also putting efforts in getting stalled investment projects moving and kick start the investment cycle," Aditya Birla Money says.

6) IMD has projected normal monsoon:

IMD has projected monsoon for the season at 98% of LPA with +/- 4% error. This would benefit the agricultural sector and help containing food inflation.

"Moreover the indirect stimulus in form of election year would also aid the overall economy. Roughly, Rs 1 lakh crore would be spent by the government and candidates for the election. Also, the government typically announces sops in the election year and refrains from the politically suicidal decision," it says.

To take advantage of the likely equity rally, the brokerage recommends investment in ICICI Bank, Yes Bank, Cairn, Maruti, Satyam/Tech Mahindra, Bata and Marico based on earnings growth, valuations and sensitiveness to improvement in macro-economic indicators.